Senate Finance Committee Hearing with Lew on the FY 2017 Budget
Senate Finance Committee
“The President’s Fiscal Year 2017 Budget”
Wednesday, February 10, 2016
Key Topics & Takeaways
- Puerto Rico: Chairman Hatch noted that the Treasury’s proposal to resolve Puerto Rico’s fiscal crisis “blows through” the territory’s constitutional protections of certain debt and asked for additional explanation. Lew explained that Puerto Rico has different levels of protections in its constitution, creating a “very complicated” financial future. He continued that restructuring authority to include all types of bonds is the first step to take, but that it “won’t solve all the problems.”
- Capital Gains: Ranking Member Wyden asked what the budget includes to begin closing the tax gap. Lew explained that the budget includes old provisions, such as changing the capital gains tax break, as well as new provisions, such as collecting all forms of income, no matter their structure.
- Data Localization: On the issue of financial services exclusion from the deal’s prohibition on forced data localization, Lew said “we can’t give away something that our financial regulators would need” in the U.S.
Witnesses
- Jacob Lew, Secretary, Department of the Treasury
Opening Statements
In his opening statement, Chairman Orrin Hatch (R-Utah) noted his disappointment in the president’s budget, saying Congress “didn’t receive a practical vision for the future.” He continued that the budget includes too many taxes, spends too much money, and “never balances.” Regarding the Puerto Rico provisions that were included in the budget, Hatch explained that the Administration is trying to provide “unprecedented debt restructuring authority” even though the territory’s constitution gives preference to some of the debts. He concluded that his questions on how the Treasury plans to handle the debt default have been avoided and that officials refuse to share contingency plans, adding that legislation is “probably necessary.”
Ranking Member Ron Wyden (D-Ore.) stated that the country has two different tax systems, a mandatory system where taxes are taken out of paychecks and one for the “well-connected” who can pay “what you want, when you want.” He continued that the tax code is filled with “shadowy, cobweb-filled corners” that accountants and lawyers are able to use to open loopholes, resulting in “slippery” definitions of income and capital gains, as well as tax-dodging. He concluded that Congress should work with the Treasury and Internal Revenue Service (IRS) to “crack down” on schemes to avoid taxes that cause the corporate tax gap.
Witness Testimony
The Honorable Jacob J. Lew, Secretary of the Treasury, United States Department of the Treasury
In his testimony, Treasury Secretary Lew focused on three areas: 1) reforming the tax code; 2) building a 21st century infrastructure; and 3) supporting working families. He stated that the tax system is essential for long-term growth and prosperity, but that companies are increasingly using inversions to avoid paying U.S. taxes, adding that the budget calls for “fiscally responsible business tax reform.” Lew then explained how more needs to be invested into modern infrastructure to create jobs and meet the needs of the growing economy. He added that to fund such tasks, a barrel fee on oil production and imports has been proposed, in addition to the Financing America’s Infrastructure Renewal (FAIR) Program that provides loans to infrastructure projects. Lastly, Lew stressed the importance of supporting working families, to include expanding unemployment insurance and access to workplace retirement saving opportunities that would complement the my retirement account (myRA).
Question and Answer
PuertoRico
Hatch noted that the Treasury’s proposal to resolve Puerto Rico’s fiscal crisis “blows through” the territory’s constitutional protections of certain debt and asked for additional explanation. Lew explained that Puerto Rico has different levels of protections in its constitution, creating a “very complicated” financial future. He continued that restructuring authority to include all types of bonds is the first step to take, but that it “won’t solve all the problems.”
In response to Hatch’s question about congressional support for the Treasury’s Puerto proposal, Lew replied that there is a “broad understanding and shared view” that restructuring authority is needed, and that without it, the territory will go through a “decade of litigation” and possibly never recover.
Sen. Chuck Schumer (D-N.Y.) commented that a broad bankruptcy provision is needed for Puerto Rico, to which Lew agreed.
Sen. Robert Menendez (D-N.J.) said that if Puerto Rico did not have to make its debt payments, the territory would have a billion dollar surplus this year. Lew agreed and added that Puerto Rico has a “unique” package of debts and that bond payments can no longer be supported. He continued that Chapter 9 bankruptcy would not work as it would only address a third of the debt, and that restructuring authority “has to be put in place.”
Sen. Sherrod Brown (D-Ohio) asked for Lew’s thoughts on the earned income tax credit (EITC). Lew replied that the refundable credit should be made permanent and that there should be bipartisan support for the EITC.
Sen. Maria Cantwell (D-Wash.) said that Congress needs to act on restructuring authority “now.”
Tax Avoidance
Wyden asked about the major sources of corporate tax avoidance, to which Lew replied they are “not on the books.” He continued that the IRS is deprived of resources that could identify the sources of the tax gap.
Wyden then asked what the budget includes to begin closing the tax gap. Lew explained that the budget includes old provisions, such as changing the capital gains tax break, as well as new provisions, such as collecting all forms of income, no matter their structure.
Tax on Oil
Sen. Pat Roberts (R-Kan.) expressed his strong opposition to the oil tax and asked if revenue will be set aside to aid the impact the tax will have on the oil industry. Lew said he would be “happy” to look at any proposal Roberts has on the subject.
Consumption Tax
Sen. Benjamin Cardin (D-Md.) asked about a consumption tax, saying it is revenue neutral and “more progressive” than the new tax code, and added that he has put forth legislation previously on the topic. Lew explained that consumption tax is not more progressive by nature, and that while the Treasury has never endorsed a consumption tax, “other countries do.” Cardin replied that it is a “fundamental problem that [America isn’t] competitive.”
Tax Reform
Sen. Rob Portman (R-Ohio) stressed the need for broader tax reform in order for America to be competitive, adding that while there has been “a lot” of focus on inversions, “they aren’t the biggest problem.” Lew replied that inversions are not the only problem, but that they are a “big” one. He continued that tax reform needs to be done this year as businesses are leaving the U.S.
TPP
Sen. John Thune (R-S.D.) asked how provisions in the Trans-Pacific Partnership (TPP) will impact U.S. financial services firms. Lew explained that Treasury is working with the financial services industry and regulators to ensure burdens are not placed on firms and that it “bargained very hard” to create terms that are “very favorable” to U.S. institutions. On the issue of financial services exclusion from the deal’s prohibition on forced data localization, Lew said “we can’t give away something that our financial regulators would need” in the U.S.
Cantwell asked for a status update on TPP, adding that she hopes there is not a delay on its passage by Republicans. Lew said that signing TPP is an “important step” and that he wants to ensure that when the vote happens, it passes.
Future Budgets
Sen. Michael Bennet (D-Colo.) asked Lew what advice he would give to his successor on future budgets. Lew explained that his successor will be coming into a different situation than he did, as he immediately had to deal with crisis management. He continued that his successor will have to invest in the short and medium-term to have the type of economy where Americans have a “bright future,” as many feel “left out of the economy today.”
Terrorism Financing
Sen. Robert Casey (D-Pa.) asked about the Treasury’s current efforts in combating terrorism financing, and asked what Congress can do to help aside from confirm Adam Szubin as Under Secretary for Terrorism and Financial Crimes. Lew said there is an “urgent need” to confirm Szubin, and added that Treasury has closed ISIL-controlled banks, cutting back on the sources of renewable funding. He continued that not just ISIL forces will be sanctioned, but also those that “touch it.”
For more information on this event, please click here.
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Senate Finance Committee
“The President’s Fiscal Year 2017 Budget”
Wednesday, February 10, 2016
Key Topics & Takeaways
- Puerto Rico: Chairman Hatch noted that the Treasury’s proposal to resolve Puerto Rico’s fiscal crisis “blows through” the territory’s constitutional protections of certain debt and asked for additional explanation. Lew explained that Puerto Rico has different levels of protections in its constitution, creating a “very complicated” financial future. He continued that restructuring authority to include all types of bonds is the first step to take, but that it “won’t solve all the problems.”
- Capital Gains: Ranking Member Wyden asked what the budget includes to begin closing the tax gap. Lew explained that the budget includes old provisions, such as changing the capital gains tax break, as well as new provisions, such as collecting all forms of income, no matter their structure.
- Data Localization: On the issue of financial services exclusion from the deal’s prohibition on forced data localization, Lew said “we can’t give away something that our financial regulators would need” in the U.S.
Witnesses
- Jacob Lew, Secretary, Department of the Treasury
Opening Statements
In his opening statement, Chairman Orrin Hatch (R-Utah) noted his disappointment in the president’s budget, saying Congress “didn’t receive a practical vision for the future.” He continued that the budget includes too many taxes, spends too much money, and “never balances.” Regarding the Puerto Rico provisions that were included in the budget, Hatch explained that the Administration is trying to provide “unprecedented debt restructuring authority” even though the territory’s constitution gives preference to some of the debts. He concluded that his questions on how the Treasury plans to handle the debt default have been avoided and that officials refuse to share contingency plans, adding that legislation is “probably necessary.”
Ranking Member Ron Wyden (D-Ore.) stated that the country has two different tax systems, a mandatory system where taxes are taken out of paychecks and one for the “well-connected” who can pay “what you want, when you want.” He continued that the tax code is filled with “shadowy, cobweb-filled corners” that accountants and lawyers are able to use to open loopholes, resulting in “slippery” definitions of income and capital gains, as well as tax-dodging. He concluded that Congress should work with the Treasury and Internal Revenue Service (IRS) to “crack down” on schemes to avoid taxes that cause the corporate tax gap.
Witness Testimony
The Honorable Jacob J. Lew, Secretary of the Treasury, United States Department of the Treasury
In his testimony, Treasury Secretary Lew focused on three areas: 1) reforming the tax code; 2) building a 21st century infrastructure; and 3) supporting working families. He stated that the tax system is essential for long-term growth and prosperity, but that companies are increasingly using inversions to avoid paying U.S. taxes, adding that the budget calls for “fiscally responsible business tax reform.” Lew then explained how more needs to be invested into modern infrastructure to create jobs and meet the needs of the growing economy. He added that to fund such tasks, a barrel fee on oil production and imports has been proposed, in addition to the Financing America’s Infrastructure Renewal (FAIR) Program that provides loans to infrastructure projects. Lastly, Lew stressed the importance of supporting working families, to include expanding unemployment insurance and access to workplace retirement saving opportunities that would complement the my retirement account (myRA).
Question and Answer
PuertoRico
Hatch noted that the Treasury’s proposal to resolve Puerto Rico’s fiscal crisis “blows through” the territory’s constitutional protections of certain debt and asked for additional explanation. Lew explained that Puerto Rico has different levels of protections in its constitution, creating a “very complicated” financial future. He continued that restructuring authority to include all types of bonds is the first step to take, but that it “won’t solve all the problems.”
In response to Hatch’s question about congressional support for the Treasury’s Puerto proposal, Lew replied that there is a “broad understanding and shared view” that restructuring authority is needed, and that without it, the territory will go through a “decade of litigation” and possibly never recover.
Sen. Chuck Schumer (D-N.Y.) commented that a broad bankruptcy provision is needed for Puerto Rico, to which Lew agreed.
Sen. Robert Menendez (D-N.J.) said that if Puerto Rico did not have to make its debt payments, the territory would have a billion dollar surplus this year. Lew agreed and added that Puerto Rico has a “unique” package of debts and that bond payments can no longer be supported. He continued that Chapter 9 bankruptcy would not work as it would only address a third of the debt, and that restructuring authority “has to be put in place.”
Sen. Sherrod Brown (D-Ohio) asked for Lew’s thoughts on the earned income tax credit (EITC). Lew replied that the refundable credit should be made permanent and that there should be bipartisan support for the EITC.
Sen. Maria Cantwell (D-Wash.) said that Congress needs to act on restructuring authority “now.”
Tax Avoidance
Wyden asked about the major sources of corporate tax avoidance, to which Lew replied they are “not on the books.” He continued that the IRS is deprived of resources that could identify the sources of the tax gap.
Wyden then asked what the budget includes to begin closing the tax gap. Lew explained that the budget includes old provisions, such as changing the capital gains tax break, as well as new provisions, such as collecting all forms of income, no matter their structure.
Tax on Oil
Sen. Pat Roberts (R-Kan.) expressed his strong opposition to the oil tax and asked if revenue will be set aside to aid the impact the tax will have on the oil industry. Lew said he would be “happy” to look at any proposal Roberts has on the subject.
Consumption Tax
Sen. Benjamin Cardin (D-Md.) asked about a consumption tax, saying it is revenue neutral and “more progressive” than the new tax code, and added that he has put forth legislation previously on the topic. Lew explained that consumption tax is not more progressive by nature, and that while the Treasury has never endorsed a consumption tax, “other countries do.” Cardin replied that it is a “fundamental problem that [America isn’t] competitive.”
Tax Reform
Sen. Rob Portman (R-Ohio) stressed the need for broader tax reform in order for America to be competitive, adding that while there has been “a lot” of focus on inversions, “they aren’t the biggest problem.” Lew replied that inversions are not the only problem, but that they are a “big” one. He continued that tax reform needs to be done this year as businesses are leaving the U.S.
TPP
Sen. John Thune (R-S.D.) asked how provisions in the Trans-Pacific Partnership (TPP) will impact U.S. financial services firms. Lew explained that Treasury is working with the financial services industry and regulators to ensure burdens are not placed on firms and that it “bargained very hard” to create terms that are “very favorable” to U.S. institutions. On the issue of financial services exclusion from the deal’s prohibition on forced data localization, Lew said “we can’t give away something that our financial regulators would need” in the U.S.
Cantwell asked for a status update on TPP, adding that she hopes there is not a delay on its passage by Republicans. Lew said that signing TPP is an “important step” and that he wants to ensure that when the vote happens, it passes.
Future Budgets
Sen. Michael Bennet (D-Colo.) asked Lew what advice he would give to his successor on future budgets. Lew explained that his successor will be coming into a different situation than he did, as he immediately had to deal with crisis management. He continued that his successor will have to invest in the short and medium-term to have the type of economy where Americans have a “bright future,” as many feel “left out of the economy today.”
Terrorism Financing
Sen. Robert Casey (D-Pa.) asked about the Treasury’s current efforts in combating terrorism financing, and asked what Congress can do to help aside from confirm Adam Szubin as Under Secretary for Terrorism and Financial Crimes. Lew said there is an “urgent need” to confirm Szubin, and added that Treasury has closed ISIL-controlled banks, cutting back on the sources of renewable funding. He continued that not just ISIL forces will be sanctioned, but also those that “touch it.”
For more information on this event, please click here.